Obama’s ‘Behavioral Economics’

This excellent article by Andrew Ferguson, illustrates the socialist experimentation going on in Obama’s regime.


Among the many transformative experiences Obama says he has planned for us, one in particular has gone relatively unnoticed. He has vowed to remake the methods by which the federal government regulates our homes, our offices, our roads and brooms and thimbles, our roller skates and garden tools and tortilla chips and sunglasses—nearly everything. The federal government regulates nearly everything already, of course, but now the new administration wants to regulate by different lights. A few days after taking office last year, Obama signed a presidential memorandum to set our new transformative experience in motion.

The memorandum began by noting that federal regulatory policy has lately been governed by an executive order issued in 1993. Political activists disliked the old order—EO 12866, as it’s known among regulation buffs—because they saw it as a hindrance to new and ever more sweeping regulations. EO 12866 made the job of regulating difficult by requiring a federal agency to perform onerous cost-benefit analyses on each regulation it proposed and to rework the rules that proved too costly. In his memorandum, the president suggested that this approach, while perhaps well-meaning, was the product of a less sophisticated, pre-Obama era.

……Obama didn’t do away with the cost-benefit requirement, or with Executive Order 12866. Instead he kicked the can down the road, as he likes to say other people are always doing. He ordered the Office of Management and Budget to conduct a 100-day review of 12866 and report back to him. Among other things, he wanted the report to “clarify the role of the behavioral sciences in formulating regulatory policy.”

At this reference a few knowing observers pricked up their ears. During his campaign, the candidate Obama was often portrayed as an intellectual acolyte of “behavioral economics,” a très chic social science that culls up-to-the-minute laboratory research about why human beings behave the way they do and applies it to the world of buying, selling, borrowing, and investing. At the candidate’s elbow, said Time magazine, was a “behavioral dream team”: economists and psychologists steeped in the latest behavioral literature. And once in office the president surrounded himself with many dream-team veterans: Lawrence Summers, Austan Goolsbee, Peter Orszag—behavioralists all.

……He also appointed Cass Sunstein, a former colleague from the University of Chicago Law School, to be his “regulation czar” (journalese for the director of the Office of Information and Regulatory Affairs in the Office of Management and Budget). Being DOIRA of OMB may not sound glamorous—it sounds more like a sinister potentate in Lord of the Rings—but it is easily the most powerful regulatory position in the executive branch, after the president’s. Every significant rule proposed by every federal agency must win the approval of Sunstein’s office, which is now staffed with still more behavioral economists recruited from Harvard, MIT, Princeton, and the Brookings Institution. It’s like behavioral summer camp over there.

“Relying on behavioral science,” Time announced, Obama and “his administration [are] using it to try to transform the country.”

……As a candidate he identified himself as an admiring reader of Nudge, a bestseller written by Sunstein and Richard Thaler, another Chicago economist who is often considered the founder of behavioral economics. Nudge was behavioral economics’ popular manifesto, a guide, for policymaker and citizen alike, to “improving decisions about health, wealth, and happiness.” Nudge became a big bestseller, predictably enough, for it was another in a long train of books—the Wisdom of Crowds, Freakonomics, Sway, Wiki-nomics, The Black Swan, the entire oeuvre of New Yorker writer Malcolm Gladwell—that claim to scour the arcane literature of social science and then cleverly apply its findings to everyday life, in ways that the wealthy white people who buy books find flattering, reassuring, amusing, and provocative. But not too provocative.

In Nudge, Thaler says, he and Sunstein drew on behavioral economics to create a “philosophy that was beyond left and right.” They call it “libertarian paternalism,” also “soft paternalism.” It’s libertarian (and soft) because it forswears government mandates wherever possible. It’s paternalistic because it wants government to “nudge” citizens into behaving in ways that policymakers prefer. Thaler and Sunstein know that libertarians find their philosophy too paternalistic and paternalists find it too libertarian, and that’s just fine with them. They cast libertarian paternalism as the via media, the third way, moderate and reasonable, avoiding political extremes and the snares of ideology. It’s Gergenism for the thinking man. The oxymoron, joining two incompatibles, perfectly encapsulates the promise of Obama himself: something fresh, exciting, and highly improbable.

……The premise of behavioral economics is “predictable irrationality.” (Another catchphrase—you have to get used to them.) We all know we do dumb things. But the behavioralists say they’ve discovered that we do dumb things systematically; we act against our own best interest (eating pie, failing to save for the future) with a consistency that smart people can observe, catalogue, anticipate, and exploit. If you as choice architect, for example, know about the “status quo bias”—people are disinclined to alter their immediate circumstances even in the face of a clear long-term benefit—you’ll switch the default option on the 401(k). A list of the irrational quirks, or cognitive biases, that behavioral science claims to have uncovered would be endless. In addition to status quo bias, there’s delusional optimism, loss aversion, the representativeness heuristic, the law of small numbers, disaster myopia, the availability heuristic, the planning fallacy, the mere-measurement effect, the mere-exposure effect, even the “yeah, whatever heuristic,” so named by Sunstein and Thaler, who have a bias for whimsy, often fatal.

This grounding in the real world, confirmed by social science, is supposed to make behavioral economics superior to traditional economics as a guide to regulating human activity. Traditional economics—rational choice economics, or neoclassical economics—gets a rough going over from behavioral economists. By their reading, its gravest error is to accept homo economicus, the notion that man is a rational economic actor who is acting always and everywhere in his own best interest, however conceived. Traditional economists don’t really believe this, at least not with the dogmatic insistence they’re accused of, but pretending that they do allows behavioral economists to position themselves as hard-headed realists trying to correct the airy abstractions of out-of-touch dreamers—a clever reversal of the cliché that usually makes liberals out to be the softies and right-wingers the no-nonsense types. Behavioral economics, wrote a smitten correspondent for the New York Times, “is the study of everyday life as it actually happens, not as some textbook says it should.”

It’s been 15 months now since behavioral economics was enthroned as the administration’s reigning regulatory philosophy. If it does indeed break with a century of conventional wisdom in economics, as its partisans claim, then we should be seeing its effects already.

……Only a year after heralding the invention of the “nudge state,” the Wall Street Journal’s economics writer followed up this March with a story headlined “Economic Policy ‘Nudge’ Gives Way to ‘Shove.’  ”
“Some of the biggest proposals of last year have disappeared without a trace,” the reporter wrote. In financial reform, for example, the Treasury Department had proposed requiring mortgage lenders and credit card companies to offer “plain vanilla” contracts—another idea popularized by Nudge—written in simple language and providing straightforward terms free of fine print. Those proposals have been shelved. Yet the Journal article quoted administration officials who insisted that behavioral economics was still alive. They cited a plan to give cut-rate loans or tax incentives to landlords to encourage them to upgrade their properties with energy efficient appliances. Once again, though, the influence of the behavioralists is hard to credit. Such a proposal operates according to traditional economics—landlords will rationally pursue their economic self-interest by grabbing a tax break—rather than to the “predictable irrationality” that the behavioralists believe they can correct through regulation.

In the grander areas of public policy, in the environment, financial reform, and health care, the administration’s hoped-for libertarian paternalism is nowhere to be found. In place of gentle pokes and prods and nudges, the administration is hoping to levy taxes and bans, impose mandates and caps, set prices and restrain trade to make people behave properly—all the command-and-control methods from the Old Kind of Democrats’ handbook. Removed from the nurturing environment of the university, soft paternalism stiffens up considerably.

……The behavioralists are often caught smuggling in a normative and political judgment under the cloak of disinterested science. A hidden assumption is easy to conceal because the science that the behavioral economists draw upon is highly elastic, not to say flimsy. One cognitive bias that the behavioralists don’t mention, though its lure seems irresistible, is the bias that makes human beings swallow uncritically the declarations of social science. The bias deters the layman from snooping around to see if the science makes sense. This is the well-established “chump effect,” a name I just made up. It accounts for the breathless reception given to the books by Gladwell and the other popularizers of sociological and psychological research. “Findings reveal .  .  .” “Scientists have uncovered  .  .  .” “Research has shown that .  .  .” And we swoon.
READ THE WHOLE THING: http://weeklystandard.com/articles/nudge-nudge-wink-wink

Obama tries to exploit what he sees as ‘irrational’ capitalist behavior by targeting the instinct for free market economic survival, and pushing government mandates to modify it.

Karl Marx couldn’t have come up with a better tactic.

Related post: http://sfcmac.wordpress.com/2009/09/11/obamas-regulatory-czar-is-a-real-wackjob/

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